DatatWare Housing

Many companies today rely on the general ledger as key part of their management reporting, well beyond the obvious financial information.

The current practices in many organisations, and the architecture of their systems, and even the very structure of the software they buy have often been shaped by the history of the adoption of information technology in the firm.

In many firms, their management reporting systems reflect the fact that as information technology began to be used extensively by business, often the very first functional area to be automated was accounting.

Because finance and accounting are of course at the heart of any enterprise often the first automated reports and the first database within an enterprise was the general ledger.

In many companies, the general ledger became the clearing house for all information- not just financial, and in effect became a data warehouse before the concept of data warehousing had even evolved.

Lets look at the example of a manufacturing enterprise.

The company invested in a mainframe computer at some time in the seventies. Management was thrilled with the new capability they had in financial reporting. It didn't take long for them to ask to have manufacturing data in the reports as well.

Eager to please, the accounting department added lots of additional accounts into the Chart of accounts (COA), adding entries that were "non-financial" storing sales quantities, volumes consumed, things like energy consumption, raw material quantities, wastage and defect counts.

This made sense at the time, because otherwise the information would not have been stored digitally. The manufacturing plants used hard wired relay logic to control their equipment, and recorded instrumentation readings on chart recorders.

A chart recorder is a device that uses a physical pen to record temperatures, pressures, position, speed, etc. of equipment on paper which is physically pulled past the pen at a predefined rate. As these rolls of paper were used up, the operator would change them. The rolls of paper with the information on them then got stored in filing cabinets.

The shift workers wrote information into formated pages in a shift book, and then at the end of the month, administrative staff added journal entries to capture the information. Many factories didn't have a computer, or if they did, it was a mini-computer that was specified by and operated by the information technology department- which was part of the finance organisation. Companies didn't have CIOs, only CFOs.

The final result was, it was possible to generate management reports with both financial and manufacturing information. How many liters of paint did we buy? How many kilowatt hours of electricity, for how many units produced. In some ways, this might have been the brief golden age of management reporting. (Or is it just that time makes memory blur?)

Then, as computers started to arrive everywhere, no longer just the domain of the finance and accounting department, the trouble started.

The manufacturing plants installed automation systems. Chart recorders gave way to distributed control systems, and SCADA (supervisory control and data acquisition) systems, and pretty soon they had their own databases. They kept having to supply numbers for the bean counters to enter into the now aging mainframe, but they used their own reports and eventually spreadsheets to actually manage their process.

Manufacturing organisations began to include "automation engineers" which, in fact, were information technology professionals, and multiple IT departments began to form in all but name. Standards for data format, coding and methods for calculating key performance indicators evolved slowly, or not at all. Finances definition of how to calculate things tended to win because they held the keys to the general ledger, where the report that went to the CEO came from.

Then came the ERP. The ERP may or may not have included the manufacturing operations, but it almost always included the general ledger. Regardless of if the manufacturing modules of the ERP were used or not, the trouble with getting management reports just got worse. Manufacturing had all sorts of detailed information they needed, and keeping the central, general ledger reports up to date meant creating more and more accounts, more and more cost centers. The concept of a separate data warehouse where information from multiple systems (finance, manufacturing, sales) could be combined was born, and the general ledger, in theory, returned to its roots as a repository for financial transactions.

The problem is, in some organisations, the data warehouse didn't come. The general ledger kept its place as the central repository for not just financial, but also management reporting.

Huge amounts of non-financial information is still stored in many general ledgers. Here are just three important reasons why your general ledger should NOT be your data warehouse.

1) It forces you to compromise on level of detail and drill down, and history

No general ledger can hold the level of detail available in many source systems. As a result, any interface from the sales system, manufacturing system etc. feeding into the GL will have to create journal entries that summarize a great deal of information.

While the detail of course will still exist in the source system, if your management reporting is all from a general ledger based system, upper management will tend to use this single source- and as a result important granularity may be lost to the decision making process.

This summarization also makes it very difficult (or impossible) to have drill down into the details, giving up some of the greatest benefits of modern business intelligence systems.

Finally, general ledger based data storage does not usually allow for the tracking of reference data changes over time. As sales regions are modified, and territories shift, comparing one period to another becomes increasingly difficult. Data warehouses, designed from the beginning to store this type of slowly changing reference information, can provide a much more insight and historical analysis.

2) It results in an overly complex chart of accounts and may even affect month end close

As the source systems become more and more capable of collecting data, the tendency is to want to increase the amount of management reporting. If this is being done in the general ledger, it means that further charts of account must be added, and an increased number of journal entries need to be done. Depending how the overall process is setup, its even possible that the increased complexity might affect the speed at which month end closing can be completed, if for no other reason that the same finance resources must both tend to the financial and the management reporting needs.

3) It discourages cross functional definitions and collaboration on analysis

By making one of the functional areas (finance) the center and owner of management reporting, a general ledger based reporting architecture can actually increase the severity of the information silos it is most likely trying to eliminate.

Because the general ledger reporting does not require all the detail available, each department only needs to provide the summarized information required by finance. While every department has to coordinate with finance, there is no requirement for sales and manufacturing, for example to compare or coordinate their information definitions. While at a high level data is integrated, any benefit from more tightly integrating information across silos that a data warehouse can bring is lost.

In a very real way, a successful general ledger based management reporting system is in fact an impediment to progress for an enterprises business intelligence and data analysis evolution.

Because management reporting is available, the justification or need for a data warehouse is not felt as strongly. However, as needs continue to evolve, the effort expended in the constantly growing general ledger, and its impact on the financial processes, and the companies overall information management culture will become increasingly damaging.

Ironically, companies who failed to ever establish a general ledger based management reporting system could leapfrog their more financially focused competitors, as they embrace the modern data warehouse, the the tools available for data analysis.

A true data warehouse is not an easy road, and is only one component of a broader data analysis strategy. In the short term, using the general ledger for management reporting can seem easier, and could put off the challenges of additional hardware and software, as well as the need to coordinate between departments.

However, despite its historical place as the center of all data storage, in a modern architecture the general ledger should be used only for accounting as it was originally intended.